According to the Norada Real Estate Investments newest blog post, by MARCO SANTARELLI, the real estate market is not suspected to experience a crash. Marco’s blog post reads:
Here are the updated housing market trends & predictions for 2020 & 2021. As of now, the housing market remains a hot seller’s real estate market, with annual price growth reaching record highs and inventory continuing to fall. But Realtor’s latest recovery trends point towards more balanced conditions. The demand has softened up as compared to previous weeks and the supply saw the largest improvement since March.
Whether it will cool off with a sharp decrease in the pace of price growth can only be seen in 2021. As of now record-low mortgage rates and shortage of inventory have kept the US housing market strong with respect to buyer demand. Strong housing demand pushed by the pandemic is driving prices insane in 2020. Both prices and sales are surging month-over-month breaking new records.
In the article, you’ll find how the US housing market is recovering week after week from the blows of the pandemic. New home sales have also risen during the pandemic and existing home sales are at a 1-year high. The real estate sector has also been highly supportive of the economic recovery of the country so far. As prices keep climbing month-over-month, it just shows the resilience of the US housing market in 2020 in the face of an ongoing economic recession.
Let’s first look at the negative housing forecast for 2021 and its reasoning. The current short-term demand that is reflected in sharply rising prices, can be attributed to the pent-up demand for home purchases from the March-July period when a great part of the country was in total lockdown. The housing sales and prices have stayed strong through the summer months amid increasingly short inventory and high demand.
This strong buyer activity points to a fall & winter housing market that is more active than normal, where buyers may face more competition and may have to act more quickly than usual to snag their dream home. In the winter season, the sales and prices will continue to rise but at a slower pace. The housing demand is still strong but it has shown some early signs of softening up.
At the same time, it is important to note that more than 6 million households failed to make their rent or mortgage payments in September, according to the Mortgage Bankers Association’s Research Institute for Housing America. In the third quarter, the percent of homeowners and renters behind on their payments fell slightly from the prior quarter. Still, the overall amount remains high.
With inventory falling to record lows, mortgage lending standards tightening and unemployment rising, new and existing home sales are precited to fall back over the remainder of 2020. That will help take some of the heat out of the housing market and soften the price growth. The major effect will be seen in the summer of 2021 because foreclosure that starts today is probably not going to be processed until mid of 2021.
At the moment, the moratoriums on foreclosure have kept lenders from being able to even start their processing of defaults. One of the negative housing predictions is that the supply in the form of foreclosed homes is may overwhelm the demand by many folds in 2021. The result would be that prices are going to plummet again and the real estate sector will likely cool off in 2021.
According to Capital Economics, the US rental markets have been getting looser, and we can expect vacancy rates to rise further to 5.5% by the end of 2020. That will push rental growth down to -1.5% year-over-year over the next couple of quarters. But, beyond that, the lack of homes for sale means rental demand should recover alongside the economy, and yields will ease back over 2021 and 2022.
However, we won’t speculate much about it and would rather focus on the current housing indicators and their recovery from the lows caused by the pandemic.
As was expected, home buying and selling prospects drastically improved in October 2020 from pandemic lows. With unusually high buyer interest this late in the homebuying season, buyers are moving much faster than this time last year to beat out competition and lock in low mortgage rates.
Homes are being sold at an increasingly fast pace when compared to the previous year. Housing prices have surged to new records due to very strong demand but low mortgage rates are helping buyers offset this increased cost. Mortgage rates for housing are anticipated to stay at near 3% over the next 18 months which will make homes more affordable.
Housing inventory continues to be constrained by stronger than normal buyer demand and little new inventory coming on to the market. These new properties are quickly taken out of the market from heavy buyer competition. Therefore, housing units are still in short supply with unsold inventory sitting at a 2.7-month supply at the current sales pace.
But the improved selling prospects in September & October (in terms of new listings) are a good sign and will need to remain on that path to bring more homes into the market. With supply-constrained and demand boosted, house prices seem to rest on solid foundations in the pandemic.
According to Zillow’s, seasonally adjusted home values would increase by 2.9% between September and the end of 2020, and rise 7% in the 12 months ending September 2021. This forecast is notably more optimistic than previously. The previous forecast predicted a 4.8% increase in home prices between August 2020 to August 2021.
Home prices are holding up to the decline in transaction activity. Price gains are reaccelerating as the mix of homes for sale appears to be reverting toward pricier properties. With the supply of available homes continuing to balance, and the entry-level demand is expected to remain strong. According to Yun, NAR’s chief economist, home prices will likely appreciate 4% in 2020, before moderating to 3% in 2021 as more new supply reaches the market.
US SINGLE-FAMILY HOUSING MARKET TRENDS
Builder sentiment is at an all-time high and building permits have rebounded from pandemic lows. In a sign that housing continues to lead the economy forward, builder confidence (NAHB/Wells Fargo HMI index) in the market for newly-built single-family homes continues to increase.
The latest reading of 85 is up 2 from last September’s 83 and at its highest level in the indicator’s history, exceeding its December 1998 record. Record ow mortgage rates have boosted demand for new homes. A reading over 50 indicates that more builders view sales conditions as good compared with those who view them as poor.
“The housing market continues to be a bright spot for the economy, supported by increased buyer interest in the suburbs, exurbs and small towns,” said NAHB Chief Economist Robert Dietz.
All the HMI indices posted or matched their highest readings ever in October. The HMI index gauging current sales conditions rose two points to 90, the component measuring sales expectations in the next six months increased three points to 88, and the measure charting traffic of prospective buyers held steady at 74.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased six points to 82, the Midwest increased three points to 75, the South rose three points to 82 and the West increased five points to 90.
September was a record month for all HMI indices, including current sales conditions, sales expectations, and traffic of prospective buyers. NAHB noted that a shift toward suburban areas working in tandem with incredibly low-interest rates has kept builders busy.
However, that may translate to higher costs and delays in receiving building materials, due to high demand, low supply, and 20 percent tariffs on Canadian supply. “Lumber prices are now up more than 170 percent since mid-April, adding more than $16,000 to the price of a typical new single-family home,” NAHB Chief Economist Robert Dietz said in a statement.
The NAHB/Wells Fargo Housing Market Index (HMI) index is designed to measure sentiment for the U.S. single-family housing market and is a widely watched gauge of the outlook for the U.S. housing sector. The NAHB gets input from builders on how confident they are in the housing market based on buyer behavior, sales, and incorporates any forecasts as well.
NEW RESIDENTIAL HOME SALES
According to Urban Land Institute, real estate market conditions and values in the U.S. are expected to rebound in 2021 and trend even higher in 2022, with single-family homes outperforming other sectors such as commercial, retail, hotel, and rental.
New single-family construction starts will fall slightly to 871,250 in 2020 before rising to 940,000 in 2021 and 975,000 in 2022, the highest level since 2006. In the meantime, home prices will grow an average of 4.1% over the next three years, above the long-term average of 3.9%, according to the report, based on a survey of 43 economists at 37 leading real estate organizations.
Sales of new single-family houses in September 2020 were at a seasonally adjusted annual rate of 959,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.5 percent (±19.9 percent) below the revised August rate of 994,000 but is 32.1 percent (±28.8 percent) above the September 2019 estimate of 726,000.
The median sales price of new houses sold in September 2020 was $326,800. The average sales price was $405,400. The seasonally-adjusted estimate of new houses for sale at the end of September was 284,000. This represents a supply of 3.6 months at the current sales rate.
As far as home sales are concerned there could again be a dip in sales due to the rise in infections in the fall season. Till the time coronavirus pandemic exists it will lead to a see-saw recovery with ups and downs. Let us discuss in detail the various housing indices & their predictions for 2020 & 2021. We have updated this article with the latest housing market report from various credible sources like Realtor.com (check reference section).
The latest weekly housing data released on October 24, 2020, by Realtor.com, shows that median listing prices grew at 12.2 percent over last year, marking 11 consecutive weeks of double-digit growth in asking prices. The price of the typical home for sale remains unchanged at $350,000.
New properties listed for sale were down 2 percent. The new listings trend continues its momentum in the right direction. This time of the year normally sees a rapid decline in the number of newly listed properties but seller confidence is improving and they are bringing in a higher than a usual number of listings into the market. This will provide some slight relief for buyers facing few options to choose from.
The total active listings were down 38 percent. This week saw a hint of good news in that the pace decline of active listing remained steady. It’s been six consecutive weeks of steady or improving decline.
With high interest from buyers and a limited flow of new listings, the total active listings have been lagging behind from the previous year. The current trend sets up a movement toward more balanced market conditions and gives buyers some hope because it would slow down the price growth.
Time on the market is 14 days faster than last year – a full 2 weeks faster than a year ago. The rapid turnover reflects the faster than usual pace of home sales despite the usually slower season. In addition to the sellers’ market pressures, in which homes sell quickly after listing, measured time on market is also dropping as the share of fresh listings rises.
The relatively good news for buyers is the time on market trend does not appear to be getting worse in the last 5 weeks. This means that if homes sit on the market for some more time, sellers may still have an advantage in many markets, but that leverage may be starting to ease.
|Weekly Housing Trends||First Two Weeks March||Week Ending Oct 10||Week Ending Oct 17||Week Ending Oct 24|
|Median Listing Prices||+4.5% YOY||+12.2% YOY||+11.1% YOY||+12.2% YOY|
|New Listings||+5% YOY||-5% YOY||-6% YOY||-2% YOY|
|Total Listings||-16% YOY||-38% YOY||-38% YOY||-38% YOY|
|Time on Market||4 days faster YOY||14 days faster YOY||13 days faster YOY||14 days faster YOY|
I know many readers may find this posting a big relief, I know it’s what we are all wanting to hear and also what we are all wanting to happen. Though we don’t have a crystal ball, we can only hope that everything will go as predicted.
For more information on Marcos blog post about the 2020-2021 housing market conditions, click the link below to view the direct post.